Standard and Poor’s downgrades Egypt’s rating

PARIS — Standard and Poor’s downgraded Egypt’s rating on Tuesday to BB-, citing weak prospects for public finances and rising risks to macroeconomic stability during the nation’s political transition.

The agency lowered its long-term foreign-currency sovereign credit rating to BB- from BB and said that outlook remains negative.

“The downgrade reflects our opinion that risks to macroeconomic stability have risen during the transition period for Egyptian political reform, which we expect to evolve over the next two years,” it said.

“These risks centre on the government’s fiscal stance but also encompass price stability and balance of payments pressure.”

The agency said that it expected the government to continue with the policies of cabinets under longtime now ousted leader Hosni Mubarak and run high general government deficits, which have averaged eight percent of GDP over the past five years.

“The negative outlook reflects our view that downside risks outweigh upside risks,” the agency said, adding that it could lower Egypt’s ratings further either later in 2011 or in 2012 “if the political transition falters in a manner that leads to renewd political turmoil”.

Egyptians will start voting for their representatives in the legislature, the People’s Assembly, starting November 28 and in the senate, the Shura Council, on January 29 next year, in a multi-round process expected to last four months.

Following the parliamentary and senate election, a committee is scheduled to draft a new constitution and then presidential elections are to be held.

The committee has up to six months to finish its work, meaning the presidential election might not be held until the end of August.